A recent study by the Ifo Institute suggests that increased state investment in infrastructure requires a more targeted approach to ensure effectiveness. The research, focusing on broadband expansion between 2010 and 2019, highlights both the benefits and potential drawbacks of government intervention.
According to Oliver Falck, head of the Ifo Center for Innovation Economics and Digital Transformation, “To ensure funds are used effectively, clear economic policy guidelines are needed. The state should only provide support where the market fails or where political objectives, such as equitable living conditions, are pursued.
The study’s analysis reveals that in areas with intensive government support for broadband development, the availability of connections offering at least 16 Mbit/s was, on average, 28 percentage points higher than in comparable, unsupported communities. However, this investment also spurred noticeable price increases, with rents rising by 3.8 percent and property purchase prices by 8.1 percent.
Simon Krause, co-author of the study, points out that “The rise in property prices demonstrates households’ willingness to pay for fast internet connections. In 90 percent of cases, this willingness alone would have been sufficient to finance the broadband rollout without state funding”. This observation suggests that past interventions were not optimized for maximum impact.
Drawing lessons for the current rollout of high-speed Gigabit networks, the authors advocate for focusing public funding on areas where private investment incentives are lacking.
Thomas Fackler, another co-author, cautions that “Broadly-defined support programs risk generating inefficient “free-rider” effects and price increases”. Instead of blanket funding, the study emphasizes the need for intelligent prioritization and complementary reforms to reduce bureaucracy, streamline regulation and improve planning processes to ensure the success of the special fund’s economic policy objectives.